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Friday, 16 June 2017

Amazon to swallow up Whole Foods in $13.7bn deal

The transaction will see the online retail giant swallow up a business with 460 stores in the US, Canada and the UK which enjoyed sales of $16bn (£12.5bn) in the 2016 financial year.

One analyst said the deal "shakes the industry to its core" and is"potentially terrifying" for other grocers.

It prompted shares in supermarket chains to slide lower, with Tesco down 5% and Sainsbury's dipping 4% in the UK while America's Walmart - owner of Asda - fell 5% and France's Carrefour was down 3%.

Texas-based Whole Foods, which has nine UK stores mainly in London, will continue to operate under its own brand. It specialises in healthy and organic ranges.

The deal will be seen as a further encroachment by Amazon on the UK grocery sector's turf after its delivery service Amazon Fresh, covering postcodes across London, Surrey and parts of Hampshire, was launched last year in a tie-up with Morrisons.

Amazon boss Jeff Bezos said: "Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades - they're doing an amazing job and I want that to continue."

Co-founder and chief executive John Mackey said: "This partnership presents an opportunity to maximise value for Whole Foods Market's shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers."

Whole Foods has recently come under pressure from an activist investor prompting it to overhaul its board.

The deal is subject to regulatory and shareholder approval and is expected to complete in the second half of 2017.

It values Whole Foods at an 18% premium to its closing share price on Thursday.

Neil Saunders, managing director of GlobalDataRetail, said: "The retail sector is used to change, but every so often an event occurs that shakes the industry to its core.

"Amazon's acquisition of Whole Foods is one of those."

He said the deal fulfils "at a stroke" Amazon's ambitions to be a serious player in the grocery market.
Mr Saunders added: "For other grocers, the deal is potentially terrifying.

"Although Amazon has been a looming threat to the grocery industry, the shadow it has cast has been pale and distant.

"Today that changed: Amazon has moved squarely onto the turf of traditional supermarkets and poses a much more significant threat.

"The only mitigation is that the more niche appeal of Whole Foods will, at least for the time being, limit the threat to other players."

Neil Wilson, senior market analyst at ETX Capital, said: "Amazon looks set to dominate the food sector now just as much as it does non-food.

"Amazon brings incredible scale and pricing power that will make life a lot tougher for anyone else."